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- My partner, and I, have already planned what would happen if either of us loses our job.
- We began by getting rid as much debt as we could and reducing fixed expenses.
- We increased our savings rate, diversified our income sources and then we refinanced.
In 2014, my future spouse and I just began living together. My first job as an adult was as a teacher. I earned three times what I earned during graduate school. My partner was already a more well-established therapist and earned a decent income.
We combined our incomes quickly to see how much we could afford to buy an apartment, car payments and food. While it was not “paycheck to payday” in a stressful manner, there wasn’t much left at the end. Save moneyI was not familiar with investing and the word “investment” in my vocabulary.
The universe brought us some hard stuff. Both our physical and mental health were at stake. We also had only one source of income, so we could be forced to become a single-income household.
We were motivated by the threat to act and prepared for any eventuality as best we could. As we prepared for any possible storm, we considered both our income and our expenses.
We started by reducing our expenses whenever possible
We realized that our student loans and consumer debt would require a substantial portion of our take-home income when we looked at our budget. Our first priority was to Reduce our debt as aggressively and as quickly as possibleDiscuss how to reduce or eliminate monthly subscriptions/bills and what can be cut from our budget in order to bring us down to the minimum.
We had to have a conversation about how we would cut costs, what we would shop for, and where extra money could be found. If we have to make drastic cuts, it will be easier to communicate early and create a plan. Reduced debt, bills, subscriptions, and other fixed expenses meant that there were less to worry about in the event of a drop in income.
We have increased our savings rate
You can build an emergency fund to pay off debt. Start investingFinancial independence meant that we had to be better at managing the money we have. YNAB, or “You Need a Budget” (YNAB), was the software that we used for coplanning and cospending. Through the appBy doing so, we could decide how much money we wanted to spend on each category. We also made sure we paid our bills first in order to save for the future.
Although our emergency fund goal was initially set at $1,000, we soon realized that we would need much more to smooth out a job-loss. As a minimum, we wanted to have three months of our normal take-home income to help us find other sources of income in the event that one of our existing streams fails. We’ve heard Maximum six months as the recommended amount for families to have, but this felt like a comfortable position for us to start, especially since my job as a teacher is one of the most stable you can have in today’s world.
We made a significant shift in our financial situation by making our expenses significantly lower than our take home pay. We were able to save around 20% so that in the event of a job loss, we would be able to stop saving immediately. We would not have a huge gap to cover our regular spending, and we would have an emergency fund to assist us.
We diversified our income streams
We are already Diversify our investmentsThis is so that even if one asset or sector falls, other asset types and sectors will likely rise to offset the loss and keep your portfolio stable. Income is the same.
To ensure that we had multiple income streams, and that one could disappear, we would still have other sources of income to support our needs. Although our main income was still from full-time work, we also included freelance writing, online courses, public speaking, and selling artwork.
One time, I was part-time working as a contractor for an NGO creating personal finance resources and curriculum. It was 25% of our take-home income at the time. When it ended, it was a major hit to our financial situation. It was just one source of income, so we were able to absorb the loss while looking for other sources.
We have found that thinking about what we would do with a reduced income has had a profound impact on our lives. It’s hard to focus on the negatives, but it can be a great way to find peace and to expose weaknesses in your finances.
